Companies Give Leading LNG Site for Alaska Project

JUNEAU, Alaska (AP) — Alaska has price advantages that could make it a competitor in the Asian natural gas market, a federal official said, though it remains unclear when or if a gas line project capable of exports will be built.

On Monday, Exxon Mobil, BP, ConocoPhillips and TransCanada Corp. announced the Kenai Peninsula town of Nikiski is the leading contender for the terminal site where gas would be liquefied and shipped to Asia. The decision, applauded by state leaders as a sign of continued progress, signaled that a decades-old dream could become a reality even though major hurdles remain.

Larry Persily, federal coordinator for Alaska natural gas pipeline projects, said the state is closer to Asia in terms of tanker voyages than, say, the U.S. Gulf Coast, Middle East, Africa and even some proposed projects in Canada's British Columbia. He said liquefaction plant compressors run more efficiently when it's cold — a plus for Alaska's colder climate — and its well-known that Alaska has the gas; it comes up with oil.

The pipeline would span 800 miles from the prodigious North Slope to south-central Alaska, and the mega-project could cost $45 billion to more than $65 billion. The companies have not yet committed to build and have made repeated calls for "competitive, predictable and durable" terms on oil and gas taxes and royalties.

Persily said the companies must feel comfortable that Alaska can compete in Asia or they wouldn't be spending time and money on pursuing the project.

Senior project manager Steve Butt said three or four other sites are still being considered, but Nikiski has the land needed for the plant, and the companies know they can route a pipeline there. Land acquisition work is underway. He declined to identify those other sites.

Another advantage for Nikiski, a town of about 4,600 people located 10 miles north of the city of Kenai, is that routing a pipeline there would allow the state's major population centers, including Fairbanks and Anchorage, to access gas from the line, he said.

A liquefied natural gas plant operated in Nikiski for decades and provided exports to Japan. But ConocoPhillips and its then-partner, Marathon Oil Corp., announced plans to close the plant in 2011, citing market changes. Sporadic shipments continued until ConocoPhillips announced earlier this year that it had decided not to renew its export license. The state has asked ConocoPhillips to reopen the site and apply for a new license to provide an incentive for petroleum companies to explore and invest in Cook Inlet.

Butt said the liquefied natural gas plant envisioned as part of the pipeline project would be 16 or 17 times larger than that plant.

Alaskans have long dreamed of a gas line as a way to create jobs, provide energy for residents and shore up revenues as oil production declines in a state where it has long been the economic life blood. Monday's announcement was another step toward building a gas pipeline to rival the trans-Alaska oil pipeline.

"A Nikiski area liquefaction plant and export terminal will be a multi-billion investment and huge shot in the arm to both Alaska's economy and confidence in our state's energy future," U.S. Sen. Mark Begich, D-Alaska, said in a statement. "A gas line from Prudhoe Bay to the Kenai Peninsula can meet Alaska's in-state energy needs while supplying the energy-thirsty countries of the Asia Pacific."

Gov. Sean Parnell said in a statement that the project is taking shape, "and the companies' commitment will help bring Alaska's gas to Alaskans and markets beyond."

The initial focus of the project was to have a pipeline run from the North Slope into Canada to serve North American markets. But progress stalled. In a 2011 bid to get things going again, Parnell urged Exxon Mobil, BP and ConocoPhillips — the North Slope's three major players — to get behind a project that would allow for liquefied natural gas exports to the Pacific Rim if the market had shifted away from the Lower 48.

Parnell set out benchmarks for the companies to meet in 2012 and 2013, and they met all but one — moving into a stage that would include preliminary engineering work and setting up a financing plan. The companies have said that step would trigger hundreds of millions of dollars in additional spending by them, something Parnell wanted to see.

Parnell, in June, said missing that deadline meant he was under no obligation to pursue possible gas tax legislation this year. Spokeswoman Sharon Leighow said by email Monday that Parnell does not intend to call a special session at this point. She said the administration is evaluating the competitiveness of Alaska's gas tax system, "and a discussion with the Legislature next session is possible."

Butt said the gas tax issue needs to be addressed during the upcoming legislative session, which begins in January. He said there is uncertainty about what the gas tax on production would be.

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